beta-Site amyloid precursor protein cleavage enzyme (BACE)-1 and BACE-2 are members of a novel family of membrane-bound aspartyl proteases. While BACE-1 is known to cleave beta-amyloid precursor protein (betaAPP) at the beta-secretase site and to be required for the generation of amyloid beta-peptide (Abeta), the role of its homologue BACE-2 in amyloidogenesis is less clear. We now demonstrate that BACE-1 and BACE-2 have distinct specificities in cleavage of betaAPP in cultured cells. Radiosequencing of the membrane-bound C-terminal cleavage product revealed that BACE-2 cleaves betaAPP in the middle of the Abeta domain between phenylalanines 19 and 20, resulting in increased secretion of APPs-alpha- and p3-like products and reduced production of Abeta species. This cleavage can occur in the Golgi and later secretory compartments. We also demonstrate that BACE-1-mediated cleavage of betaAPP at Asp1 of the Abeta domain can occur as early as in the endoplasmic reticulum, while cleavage at Glu11 occurs in later compartments. These data indicate that the distinct specificities of BACE-1 and BACE-2 in their cleavage of betaAPP differentially affect the generation of Abeta.